Why do all the excuses come out sounding like
"I didn't know it was loaded"?

It is clear that the drive for this fraud is "keep the deals coming".

Everyone in the pipeline wants a deal-the borrower wants a house, the real estate agent wants a commission, the loan broker her percentage, the loan packager for his percentage, the bond seller his, the bond buyer theirs, etc., etc..

A deal is a win, win, win, win...

Except when there is nothing at the foundation of the deal.

It was a pyramid scheme, in a way, where everything depended on the next person walking in the door wanting a house. So there was no-one in the entire process whose interests lay in saying "no deal", which was especially critical at the end of the pipeline where the deal was being made in real time.

So the wink and a nod prevailed. It is no surprise that all sorts of pathetic frauds existed that wouldn't have fooled a blind monkey. It really wasn't in anyones interest to stop the deal. Everyone was getting rich, and those who weren't rich could get rich by making a deal to buy a house.

No downside at all, until the enormous profits to be made in making the deal raised the price of the deal to points where the now always cash-strapped original buyer had no way of coming up with the payments for the house.

The deal-makers understood and felt the pain of "no-deal", so they made a new kind of deal where the deal could be made today, but the buyer would't really have to start paying for the house for a few years. After all, look at all the furniture stores running on "Make no payments until 2011". So the deals kept coming, faster and faster. And everyone still got their percentage. Sometimes they got even more of a percentage for being creative.

The television hucksters, the "get rich quick" book sellers, the investment advisors all line the way to the "deal". The new kids, the internet schemers also got into the act. They all had their own grubby tricks and "secrets" that would guarantee maximum return for minimum input, And there was no-one to shut these people down, because they were also a part of the deal, they added the carnival excitement to the deal. They pushed the house buyers into the pipeline.

And again there was no down-side, that is until the dredging pumps of the deal-making machine sucked in more junk than jewels.

--
I was recuperating from a surgery for the past ten days and while lying on the bed I got to read The Bible from the beginning (no, I am not a Jew or a Christian or a Muslim) and finished the book of Job.

It is hard to escape the conclusion that slavery among the same group of peoples was primarily an economic institution and the #1 cause of slavery has been debt (hence the Jubilee). Among different groups of peoples there were other causes of slavery, mostly thru conquest. It is also hard to escape the conclusion that those who push debt on masses are evildoers (I realize that Americans don’t like my moralistic terminology).

Regardless of the long list of the nickel-and-dime fraudsters in the mortgage business, what has been the source of the money, i.e., the Fountainhead of Liquidity that spilled into mortgages and many more speculative activities?

The obvious answer, hard to escape, is – bankers and financiers of New York City assisted by the Federal Reserve. Since almost all of then are Christians and Jews, i.e., familiar with The Bible, they can’t escape the blame of the evil of putting the masses under a very heavy burden of debt. NO, IT WAS NOT FOR NECESSARY OR BENEFICIL PURPOSES.

America is in the control of financial evildoers (evildoers come in many flavors!) and the future outcome of such a nation is never in doubt.

I am all in favor of understanding the details but not keeping the big picture in the foreground is a very bad habit.

Q1: If we declare a debt forgiveness for all the personal debts (not investment related debts) who all will take a bath?

Q2: Will the economy and the financial system collapse if indeed there were to be debt forgiveness??

Jas

yal-

when does the light go on?

Q2: Will the economy and the financial system collapse if indeed there were to be debt forgiveness??
Jas
i dont think so. that would be a wonderfull occasion for a new war, maybe in iran or syria.
just look at afrika. bono sings about africa and we all shed our tears and forgive them their debts. then they go and buy new weapons and go into war against each other.

Key graph:

An examination of loans made last year, including prime and subprime, in which some sort of fraud occurred, showed that incidents of false tax or financial statements had risen to 27 percent from 17 percent in 2002; fraudulent verifications of deposit had climbed to 22 percent from 15 percent four years ago; and false credit reports rose to 9 percent from 5 percent in 2002, according to a report issued this spring by the Mortgage Asset Research Institute based in Virginia.

The percentages are hooey because the denominator is carefully hidden behind "in which some sort of fraud occured". How many applications was that? 259?

It's all BS. Right on, Tanta!

Good job grading dryfly- I have read Mish for eight years off and on- back to the old colorado longwaves group.

The only problem with his system is that Bernanke has explicitly promised to never allow deflation- and in nominal terms deflation is pretty much dead.

Now that doesn't mean that the ordinary working stiff can't feel that going broke feeling from higher prices and stagnant wages....but that isn't classical deflation.

One of the difficulties with his position is so much of his analysis is right, just the conclusions and solutions are wrong.

So what is going to happen? The usual level of crisis in the US leading up to a Carter style belly flop with insanely high rates shutting down the real economy or what is left of it?

Yup- but we have years until we get there, and first a whole lot of foolishness gets revealed, leading to a bunch of folks getting stiffed who previously thought they were rich.

Leverage works wonderfully when you get the right bet at the right time and you get paid off- but when you lose like the Bear just did- then poof- all gone.

As for my profession- look who pays them, and then contemplate what they say.

Want a higher paycheck- get yee to a B-school less prestige-more bucks.

Someday this war's gonna end...

Allenm,

Problem is that the US is far too indebted, import-dependent, and energy hungry to weather the coming downturn in the usual fashion. There's hell to pay, and the check's coming due quicker than anyone ever expected.

I've heard and read that it wasn't just RE & equities that dropped in Japan. The prices of everyday items have declined throughout. That's part of the reason people wouldn't borrow -- even at 0%, the money paid back was worth more than the money lent.

Yes, the government can do just about anything it wants to do. So, given that, why aren't they already doing it? IMO in this age of the "small world", there's an invisible line in the sand that just can't be crossed without huge repercussions. IOW, the consequences of such actions far outweigh the benefits. Furthermore, TPTB (think they) know the benefits, but can't know all the consequences and are deathly afraid of what they don't know.

Having power is one thing; using it is quite another.

At the time of Reagan's voodoo economics, Alan Blinder restated Murphy's law as "Economists have the least influence on policy where they know the most and are most agreed; they have the most influence on policy where they know the least and disagree most vehemently" then added the essential O'Connor's Corollary: "When conflicting economic advice is offered, only the worst will be taken."

As was the case with the stupid warmongering that led to Iraq the Bush Republicans were going to do what they intended to do to maintain their ideological commitments (while rewarding themselves and their supporters) and there was nothing an entire fleet of economists or more honest policy makers generally could have done to stop them.

I can think of only one way out of the debt trap this has helped create that offers necessary (but possibly not sufficient) control and that is to make the money that repays that debt (primarily $USD) worth less. OTOH the owners of that debt include a significant proportion of the wealthy so one can appreciate the tension a central banker might feel under the circumstances.

So can we have deflation in real estate and inflation in everything else?

Why not? Peter Schiff makes a good case that foreigners will eventually use the favorable exchange rate to buy (and export) everything here that isn't nailed down. Furthermore, all those fresh & exotic foods we produce and/or import?? They'll be redirected to those better-heeled foreigners, too.

I'd say the ability to commit fraud has dramatically increased. Watermarks, fine printing quality exc... gotten really easy.

Required people to do some leg work to really check things out. Also puts a dint in the insanity of lending a half a million on the net.

Like all bubbles, the fraud gets ignored till the end. So we are at the begining of the end of all this. Should be wave after wave after wave.

Right now we are just seeing the first little waves. Data is still noisy... soon all the signs of recession/depresion and collapse of the credit cyle will be clear.

Since everyone seems to have gotten off on a tangent, let me just say that the NYT should basically just re-run the article with Tanta's comments embedded. Sort of like the teacher giving the pupil a rap across the knuckles with a ruler. This type of article is exhibit A in displaying why the US population is completely uninformed in financial areas, among others. They managed to write a whole article that says a lot, but in the end doesn't tell us anything of substance. I've noticed the AP stories that show up on the major news sites like MSNBC also tend to read like this. I don't know if they're pressed for time or what, but they're just a huge waste of time.

"...wonder if the Japanese central bankers didn't come to the decision that it was better to live with some moderate (other than assets) deflation than to face a massive exodus of investment."

My guess is somewhat opposite: That one of the reasons the BoJ has been reluctant to really clamp down on the carry trade is that it has significantly improved money velocity, something the BoJ could not succeed in creating internally; i.e., much of the Yen may be leaving the country for higher yielding shores, at least initially, but it is Japanese banks making those loans and, one must assume, improving their loan portfolios and balance sheets in the process.

Easy credit is readily associated with greed and fraud as well as financial good times -- parasitic behavior, tapping nutrients, is easier in times of high turnover and of course parasites by their very nature strive to appear innocent or at least innocuous (I knew I could get the original topic of the post in here somewhere) -- but sometimes the issue may simply be an attempt to leverage oneself out of a hole before the walls collapse.

The more benign economic scenario is not goldilocks IMHO -- all paths appear to lead to some degree of pain to those who owe and to those who are owed -- but the possibility that Japan will succeed in levering itself out of the hole while the BRICs and a few others lever themselves into more developed economic status and the incredible debt levels involved worldwide is effectively monetized away without the entire financial system imploding. I still see that as the more likely outcome although there are days I have my doubts and see the whole mess sliding downhill on an edge that suddenly shrinks to razor sharpness.

Sebastian, you seem so sure about energy prices- I don't share your confidence- but I did live through the last mess as a kid growing up in the 70's- so my memory might be a bit of a hinderance to accepting your worldview.

BTW- last I checked current world oil is running about $68 a barrel- triple the ten year average. Sort of reminds me of $6 to $18 a barrel...

Someday this war's gonna end...